What ESG Means for the Future of Agriculture

What ESG means for the agricultural industry

Gabi Kinney | Senior Strategist 
Emma Vik | Strategy Analyst

As National Ag Week 2023 concludes, we want to keep discussion moving around this year’s theme, “Growing a Climate for Tomorrow.” Over the last several months, we have taken a deep look at environmental, social and governance (ESG) and how it currently affects, or will affect, the agricultural brands and organizations we partner with. 

You might be wondering, “Do I really need to understand another acronym?” But we’ll answer all your questions including how ESG differs from its cousin, corporate social responsibility (CSR), what the common barriers are to getting started and why it’s so important within the agricultural industry.

So, what’s ESG all about? 

“There’s no unified way to explain and measure ESG so it’s up to communicators to bridge the knowledge gap.” – Axios Communications 
First things first, ESG stands for environmental, social and governance. It’s commonly mistaken for CSR, an equally important and related initiative. However, without governing bodies that provide objective definitions, certifications, and measurement, both terms can feel fuzzy for brands.  
Whereas CSR is an approach to the integration of social and environmental initiatives into a business, ESG is a metric that measures those initiatives (and more), especially to be used as indicators of risk within investor relations. Let’s break down the acronym even further:

Environmental: How a company supports the environment 

  • Waste and pollution 
  • Greenhouse gas emissions 
  • Climate risk 
  • Resource depletion 
  • Energy management 

Social: How a company treats people 

  • Employee relations 
  • Diversity, equity & inclusion 
  • Working conditions 
  • Human rights 
  • Customer privacy 
  • Product quality & safety 

Governance: How a company polices itself 

  • Risk management 
  • Transparency 
  • Tax strategy 
  • Board diversity and structure 
  • Certifications 
  • Anti-corruption controls 

Beyond a buzzword: The ever-growing importance of ESG 

As organizations begin to understand and implement ESG, they’re increasingly asking, “Are we making the world a better place?” versus, “Are we not doing harm?” 

According to McKinsey, ESG creates value for brands in five distinct ways: 

  1. Top-line growth from having more customers and access to resources from strong organizational relations. 
  1. Cost reductions from reduced operating expenses. 
  1. Regulatory and legal interventions will be minimized, and a brand could potentially earn subsidies and government support from great environmental/social policy implementation. 
  1. Productivity uplift from greater employee treatment and social credibility. 
  1. Investment and asset optimization from long-term capital allocation which can enhance returns; knowing where/what to invest in from an ESG framework in place. 

Many small/mid-capitalization companies are beginning to invest in ESG voluntarily, but there’s vast room for growth: 77% have a formal ESG purpose statement, while only 62% report having ESG integrated within their strategy.

What does this mean for the agriculture industry?  

“Feeding a growing population and sustaining the environment aren’t conflicting goals — they’re one in the same.” – Michael Gilbert, Ag Funder News 
Farmers have been on the frontlines when it comes to navigating the gray areas of carbon farming, new production practices, and other sustainability-focused efforts over the last decade. Collective ESG efforts will only be successful to the extent that those across the agricultural value chain can come together to create a space for those on the frontlines to get the resources, support and return on investment they need.  
Investing in agriculture has myriad benefits such as the diversification of stock portfolios, appreciation of land and boom of new technologies and innovations — and a focus around ESG will only continue to increase these benefits. While the majority of ESG initiatives have been voluntary or investor-driven, we predict it’s only a matter of time before we see additional regulations across industries.  
The barriers to starting can be high (understanding measurement, gaining certifications, scaling efforts), but organizations see cost savings over time. Not only does ESG satisfy investors, it can help decrease input waste and costs while also increasing output — both on the farm and for agribusinesses serving farmers.  

Consumer expectations around transparency in this space will continue to increase as well. Eyes are on the “say-do gap,” showing discrepancies in what consumers say they care about versus what they actually do to combat sustainability. Brands can help close this gap by considering that sustainability claims don’t motivate everyone the same way. For example, farmers consider ease of implementation and return on investment alongside sustainable impact. We can make sustainability more “mainstream” by putting each audience’s unique purchase drivers at the forefront.

The time is now to jumpstart your ESG efforts 

Those working in the agriculture space, especially farmers, have been making a positive impact on the environment for decades — and by continuing to do so, crop yield, revenue and efficiency will only increase.  

The benefits above are critical as not everyone is motivated solely by sustainable claims. But moving forward, expectations are that you will begin to position yourself to take a stance and act on ESG efforts.

With deep experience in animal health, crop production, retail distribution, and equipment, broadhead can help you better understand where and how to leverage ESG in a way that makes sense for your brand, and for your customers, long term.  

Contact us to get started.